Category: Transnational corporations

I thought it’d be useful to do a little post on the sheer scale of global corporations, so below I simply list the top 10 by revenue and then in italics next to them I’ve put the countries who rank immediately below them by nominal GDP* at 2016 figures.

The top 10 companies in the list above consists almost entirely of Chinese and American firms – just three are from different countries: Germany, Japan and The Netherlands. The largest British firm on the list by revenue – BP – comes in at number 12.

More than a fifth of those on the latest list – 109 companies – call China home, up from only 29 companies a decade ago.”

Banking was the industry with the most number of companies on the list, at 55, followed by automakers/parts suppliers with 34, and petroleum refiners with 28.

In terms of countries, all of the very large population countries are way more economically powerful than any of the TNCs, and nearly every relatively large population Western European countries are richer than those TNCs.

However, there are plenty of European powers which are mixing it in with these corporations and only TWO African countries which mix it with the top ten TNCs – Nigeria and South Africa.

Walmart – had a higher 206 Revenue than Poland’s 2016 GDP

*I know there are problems comparing GDP and Revenue! I covered that in a previous post…

Just for contrast… the Top 10 Largest UK companies by revenue are:

BP – $186,606m

Legal and General Group – $105,235m

Prudential – $96,965m

HSBC Holdings – $75,329m

Aviva – $74,628m

Tesco – $74,393m

Lloyds Banking Group – $65,208m

Vodafone Group – $58,611m

Unilever – $58,292m

SSE – $37,813m

It’s probably worth noting that 5 out of 10 on the above list are finance related companies (banking or insurance), while the rest really just provide ‘basic’ products – energy, communications and retail products. So the top end of the UK economy consists of a wierd combination of companies producing ‘the basics’ and ‘the evil dark arts of finance’. Thus you might say that our economy is 50% tangible or real.

Are Corporations more Powerful than Nation States?

This is all very well and good, but what does all this tell us about the power of TNCs compared to countries? Are TNCs actually more powerful, or is using revenue and GDP misleading? While they do both provide a measure of money flowing into a Corporation or a country on a yearly basis, they don’t take into account the nation state’s power of taxation and its (supposed) monopoly on certain forms violence…

Of course if we take the countries which rank above the top 10 companies – the USA, China and so on, it seems sensible to suggest that these two entities work hand in hand (Rex Tillerson being just the most obvious example), but when it comes to African nations, who barely register among the big boys, do they have any chance of standing up to such huge TNC entities?

Or is all of this moot with the rise of alternative economies, given that all of the above is measured in dollars?!?

It’s fairly standard practice in A level sociology to teach that transnational corporations are basically evil and harm developing countries. I subverted this a little bit today and got students to make presentations assessing this view.

ExxonMobil is the world’s largest oil and gas corporation – its main ‘business lines’ involve producing a range of fuels for cars, planes and ships, as well the technologies surrounding the extraction and refining of these fuels.

ExxonMobil: Key Facts and Stats

Registered in Texas, USA.

Assets (2016) – $330 billion

Revenue (2016) – $218 billion

75 000 employees globally

The CEO from 2006 to 2016 was Rex Tillerson, until Donald Trump appointed him as the 69th Secretary of State, a position he formally took up in February 2017. Tillerson has a relatively modest Total Net Wealth of $245 million (although I simply CANNOT believe that’s an accurate figure.)

Rex Tillerson: Putting Oil and Money First?

Criticisms of ExxonMobil

This video outlines a fairly basic criticism of Exxon’s dealings with the ruling family of Equatorial Guinea – which is the richest country in Africa in terms of GDP, but not in terms of social development, because although Exxon pump a lot of oil out of the country, pretty much all of the money from that oil revenue gets pumped into the hands of the ruling family. They’re so rich, that the Vice President (the president’s son) owns a $30 million dollar mansion in Malibu.

A second criticism of Exxon is that it could have effectively prevented climate change: its own internal memos show that the company proved the link between burning fossil fuels and global warming in the late 1970s, but then buried the research and instead funded climate change sceptics to spread doubt about man-made climate change, and cynically invested in areas such as the arctic which it thought global warming would open up for further oil extraction.

According to this Guardian article, Bill Mckibben argues that if only Exxon had been honest, we could have taken much early steps to avert global warming.

Glencore is one of the world’s largest commodities companies – it operates in 150 countries extracting natural resources such as iron and copper, but also has interests in coal and oil, as well as numerous agricultural products.

Criticisms of Glencore

Below are some arguments and evidence that Glencore is an example of a Transnational Company which is not really interested in promoting development in poor countries, but really just interested in extracting as much as it can for as cheaply as possible.

Glencore – extracting commodities from 6 continents

Glencore has been widely criticized because it has made staggering profits by extracting huge volumes of natural resources out of poor countries. To put the size of Glencore in perspective, the annual revenue of the company is 10 times greater than the GDP of Zambia.

The 2013 video below documents how the company struck a deal with Zambia to mine its copper in which it extracts around $1 billion of copper per year but pays only 8% tax to the government, and gets free electricity for its mines into the bargain (paid for by the government).

This report from War on Want estimates that a combination of poor trade deals and tax avoidance costs the Zambian government $3 billion/ year, or 10% of its GPP. The report isn’t limited to just Glencore, it focuses on other mining companies such as Vedanta, none of these companies comes off as effectively promoting development in poor countries.

Glencore has also come under heavy criticisms for poor health and safety conditions in many of its mines, its record on environmental pollution and benefitting from child labour in the DRC.

Further Sources

Students might like to use these sources to assess the role of the TNC Glencore in promoting economic and social development in poor countries.

“Wages are rising. The ‘wage tracker’ maintained by our US economics team — a composite measure of wage growth based on the four main wage indicators — hit 3.0% year-on-year in the first quarter for the first time in this expansion…. And as our colleagues in equity strategy have recently pointed out, rising wages are a threat to corporate profit margins” (1)

This news letter is an example of a private document as it is only sent to high net wealth investors, who invest in Goldman Sachs’ financial services, and was never meant for public eyes, not being available in the public domain of their web-site.

It’s a nice example of how private (ish) documents can give you an insight into the simple logic of these companies – and this insight seems to suggest that Marxism is still relevant today… this really does seem to be a simple case of the Capitalist class panicking about the working classes (those who receive wages) earning more and thus taking a greater share of wealth they generate.

Transnational Corporations are businesses that operate across international borders, though most of them have their headquarters in the USA, Europe and Japan.

There were about 7000 TNCs operating in 1970, but the charity Christian Aid estimates that this figure has now increased to about 63, 000 with about 690, 000 subsidiaries which operate in almost every sector of the economy and almost every country in the world today.

The key characteristics of TNCs are:

They seek competitive advantaged and maximization of profits by constantly searching for the cheapest and most efficient production locations across the world

They have geographical flexibility – they can shift resources and operations to any location in the world

A substantial part of their workforce is located in the developing world, but often employed indirectly through subsidiaries.

TNC assets are distributed worldwide rather than focused in one or two countries – for example, 17 of the top 100 TNCs have 90% of their assets in a different country from their head office.

TNCs are economically very wealthy and thus potentially more powerful than many of the world’s nation states.

According to Forbes magazine, in 2013, 37 of the 100 largest economies in the world were run by TNCs rather than countries. For example, BP is bigger than Finland, while Chevron is bigger than Ireland, and the combined annual revenue of the 200 largest TNCs exceeded those of the GDP of the 182 nation states containing 80% of the world’s population.

Critics remind us that GDP and annual revenue measure different things, so these figures may not show actual differences in economic power, but this aside, the relative economic power of TNCs has grown in relation to nation states over the last few decades, and today TNCs wield much more economic power than they did in the past.

Fobel et al (1980) note that from the 1970s TNCs set about investing significantly in the developing world because of high labour costs and high levels of industrial conflict in the West, which reduced profits. The investment was greatly helped by developing countries, which actively sought TNC investment by setting up special areas called Export Processing Zones, or Free-Trade Zones, in which TNCs were encouraged to build factories for export to the West.

Free Trade Zones offered incentives such as infrastructure provided by the government (transport links), few planning controls on building, and low taxation. There are now over 5000 free or export processing zones in the world today which employ over 43 million workers, the majority of which are based in China’s territories.

Marxists are generally critical of the role of TNCs in developing countries. They basically argue that they are part of the neo-colonial project and their main focus is to maximize profit by extracting resources from poor countries as cheaply as possible, paying workers in poor countries as little as possible and externalizing as much of the costs of production of possible (basically not cleaning up after themselves.

The Corporation’ documentary provides an excellent analysis of why corporations commit so much damage against people and plant in the pursuit of profit – they are basically legally obliged to maximise the profits of their share-holders – profit comes first, everything else second, and simply put, it is cheaper to extract, pollute and exploit than to use resources wisely, pay people decent wages or clear up your pollution.

Criticisms of TNCs

Bakan (2004) argues that TNCs exercise power without responsibility. Bakan makes several criticisms of Corporations including:

They pay workers low wages – as with sweat shop labour

They pollute the environment – as with the case of Shell in Nigeria.

They take risks with health and safety, which can result in worker injury and death – as with the case of Union Carbide in Bhopal

They profit from human rights abuses – as with Coca Cola in Columbia.

Transnational Corporations pay workers low wages

This is probably the best known criticism to be leveled at well-known Corporations such as Nike, Adidas and Primark is that they profit from ‘sweatshop labour’ – with the workers who manufacture their products working extremely long hours in poor conditions and for extremely low wages.

In chapter 5 of The Corporation, one researcher calculates that workers at one of Nike’s factories in Indonesia were earning 0.3% of the final selling price of the products they were making. Now, I know there are middle men, but in classic Marxist terms, this is surely the extraction of surplus value taken to the extreme! The anti- sweat shop campaigns are several years old now, but still ongoing.

Of course sweat shop labour is not limited to the clothing industry – the BBC3 series ‘Blood Sweat and T shirts/ Takeaways/ Luxuries’, (3) in which young Brits travel to developing countries to work alongside people in a wide range of jobs, clearly demonstrates how workers in many stages of the productive process, including rice sowing, prawn farming, gold mining, and coffee packing, suffer poor pay and conditions. Many of the goods focused on in this series end up being bought and the sold in the West by Transnational Corporations for a huge mark up, and it is extremely interesting to see the Brits abroad struggling with the injustice of this.

The Daily Mail recently conducted some undercover journalism in a Chinese factory that makes the i-pad – where the report they ‘encountered a strange, disturbing world where new recruits are drilled along military lines, ordered to stand for the company song and kept in barracks like battery hens – all for little more than £20 a week.’ Apparently workers have to endure shifts up to 34 hour s long, and the factory has been dubbed the ‘i nightmare factory’.

Corporations are responsible for causing ecological decline and damage

The evil Coca-Cola corporation is a good example of a company causing environmental decline in India:

It takes 2.72 litres of water to produce 1 litre of coca cola. Now this may sound like a reasonable ratio for such a deliciously sweet beverage, but not if you happen to be a farmer living close by to Coca Cola’s Kaladera plant in Rajasthan, North East India. According to recent independent report, commissioned by coca cola, “[the factory’s] presence in this area would continue to be one of the contributors to a worsening water situation and a source of stress to the communities around,” concluding that the company should find alternative water supplies, relocate or shut down the plant.

The result of coke’s presence in the water depleted region is that local farmers who have lived in the area for decades now have inadequate water supplies to keep their crops watered and there appears to be a clear link between the coca cola Corporation moving into the region and the destruction of the livelihood of the farmers living nearby. Coca Cola, which had an advertising budget of $2.6 billion in 2006, is clearly in a position to compensate these farmers, or relocate to a more water rich area, but chooses not to. Coca Cola’s priority clearly lies in maintaining its sickly sweet image while generating famine and poverty for those living in proximity to its factory.

Another example of a company causing environmental damage is Shell in Nigeria. Watch the brief clip from the Video ‘Poison Fire’ and note down the scale of environmental damage caused by Britain’s biggest company.

Corporations cause illness and death in the pursuit of profit

Union Carbide in Bhopal India is easily the most horrendous example of this…..

In December 1984, an explosion at a pesticide plant in Bhopal India, then owned by the American multi-national Union Carbide, lead to deadly gas fumes leaking into the surrounding atmosphere and toxic chemicals into the ground. That was more than 25 years, but, according to the Bhopal Medical Appeal (1), a toxic legacy still remains. In addition to the 3000 people that died almost immediately, over the last two and a half decades, there have been a further 20,000 deaths and 120 000 cases of people suffering from health problems, including severe deformities and blindness, as a result of the toxic seepage into the surrounding area from the plant.

Since the disaster, survivors have been plagued with an epidemic of cancers, menstrual disorders and what one doctor described as “monstrous births” and victims of the gas attack eke out a perilous existence – 50,000 Bhopalis can’t work due to their injuries and some can’t even muster the strength to move. The lucky survivors have relatives to look after them; many survivors have no family left.

apparent root cause of the accident was that the plant had not been properly maintained following the ceasing of production, although tons of toxic chemicals still remained on the site.

It wasn’t until 1989 that Union Carbide, in a partial settlement with the Indian government, agreed to pay out some $470 million in compensation. The victims weren’t consulted in the settlement discussions, and many felt cheated by their compensation -$300-$500 – or about five years’ worth of medical expenses. Today, those who were awarded compensation are hardly better off than those who weren’t.

TNCs profit from human rights abuses

In 2003 the Trades Union movement pushed for a boycott of Coke because of the company’s alleged use of illegal paramilitaries to intimidate, threaten and kill those workers who wished to set up a Trades Union at a bottling plant in Colombia.

Campaigners for the Killer Coke campaign have documented a ‘gruesome cycle of murders, kidnappings and torture of union leaders involved in a daily life and death struggle’ at these plants. The bosses at some of Coke’s factories in Columbia have contacts with right wing paramilitary forces, and use violence and intimidation to force unionised labour out of work, and then hire non-unionised labour on worse contracts for half the pay. There have been more than 100 recorded disappearances of unionised labour at Coke’s factories.

Now the Coca Cola Corporation is obviously not directly to blame for this, as Columbia is one of the more violent countries on the planet, and this culture of violence and intimidation is widespread. The company is, however, responsible for making the conscious decision to choose to invest in a region well known for such practices, and failing to either pull out or protect its workers.

The Role of TNCs in Development – Conclusions

It is clear that TNCs are not particularly interested in helping poor countries to develop. However, it is not the moral responsibility of these corporations to do so; their primary commitment is to maximize profit for their shareholders.

However, we must be careful not to tarnish all TNCs with the same brush – not all of them are as bad as each-other, and some do have ethical codes of conduct which they apply globally. TNCs are also sensitive to their public reputations, and boycotts supported by well-known charities such as Oxfam have the potential to damage corporate profitability.

It would also be a mistake to dismiss all TNC investment in the developing world as exploitative. TNCs can bring innovation and efficiency into developing countries, and the wages they pay are often more than the wages in local industries.

Finally, there is the fact that TNCs probably aren’t going to diminish in power any time soon, so instead of criticizing them, it might be better to focus on what steps we might take to make the immoral ones behave better.

The following barriers exist to making TNCs work more effectively for development

There is a lack of global control by national governments and agencies such as the United Nations. Quite simply, there is no international body or law in place to regulate the activities of these corporations on a global scale, there is no international minimum wage, for example.

Corporations are globally mobile. Local populations are not. Governments are often reluctant to hold Corporations to account because they will simply move their operations to other countries.

Leaders of governments across the world are part of the same global-political elite circle as the CEOs who run TNCs, so it is not in their interests to regulate them.

TNCs – Extension work

Watch ‘The Shock Doctrine’ by Naomi Kline – a depressing account of how TNCs profit from war and conflict, among other things.

Modernisation theory saw TNCs as playing a positive role in helping societies to develop. Rostow (1971) saw the injection of capital as essential in the pre-conditions for take-off phase of development, and he thought TNC’s were one of the institutions which could help kick start the process of development by investing money, technology, and expertise that the host country did not possess.

It is neoliberals, however, who have historically been the real champions of TNCs as the most efficient institutions to kick-start and carry through development in poor countries. In neoliberal theory, economic success is proof of competence – the fact that TNCs have been making goods efficiently at a profit on a global scale for decades, if not centuries, mean that these are the institutions best placed to kick start economic growth in poor countries.

Neoliberals argue that the governments of developing countries need to pull down all barriers in order to create a ‘business-friendly’ environment in order to encourage inward investment from Transnational Corporations.

In Neoliberal theory, corporations will help a country develop in the long term by providing jobs and training. The money earned will be spent on goods and services at home and abroad creating more money to invest and (limited) tax revenue for further development.

A summary of the supposed benefits TNCs can bring to developing countries

TNCs bring in investment in terms of money, resources, technology and expertise, creating jobs often where local companies are unable to do so.

TNCs need trained workers and this should raise the aspirations of local people and encourage improvements in education

Jobs provide opportunities for women promoting gender equality.

Encourage international trade which could increase economic growth, access to overseas markets

All of the above means that wealth generated from TNC investment and production should eventually trickle down to the rest of the population.

In this talk Noam Chomsky emphasises that Trump’s election and his climate change denial threaten the very existence of the planet and the human species; and he also reminds us that despite America’s increasing political isolationism, U.S. Corporations still reign supreme.

Chomsky starts by saying that he was in Spain when he heard the results of the U.S. election, and the various commotion and commentary which surrounded it, but in fact the first very real negative consequence of Trump’s victory happened on the very same day and yet went largely unnoticed by the world’s media.

At the very same time as the U.S. presidential election results were being announced and analysed, COP 22 was taking place in Morocco, which was the first meeting of the signatories to the Paris Climate Change agreement (COP21) at which most countries agreed in principle to take concrete action to reduce dependence on fossil fuels and try to slow down global warming.

The Paris Climate Change Agreement – Ruined by the Election of Donald Trump?

Because the specifics of the actions to be taken had been left vague after the Paris meeting, the point of COP 22 in Morocco was to start to add in the specific details of the agreement, however, following Trump’s election, and his commitment to scrapping current environmental regulation and monitoring in the U.S., COP 22 ended with no further progress having been made.

In fact, the agenda of the global climate change framework has now changed to one of ‘how can we combat global warming without the U.S. on board’, and nations have now started to look to authoritarian, anti-democratic China for leadership if any progress is to be made in this area.

Chomsky is very clear that environmental catastrophe is now one of the biggest threats facing the survival of the species (the other is nuclear war), and he focuses on Asia to highlight the coming global problems.

In the next few years, 10s of millions of people will be fleeing from Bangladesh because of the severe level of global warming resulting in sea levels rising, which would be a real refugee crisis, unlike the present one which he casts as a ‘moral crisis’ of the European Union.

(According to one climate change scientists, these climate change migrants should have the right to move to the United States and other rich countries that are causing global warming.)

Again in Asia, a second environmental crisis looms in India and Pakistan, in the form of potential conflict over scarce water resources – two states with nuclear weapons, which potentially trigger a survival crisis for the human species.

Chomsky’s next point is that U.S. isolation in the world is increasing in remarkable ways: the U.S. had been heavily involved in South and Latin America in the decades following World War Two, but the IMF has been completely kicked out of some countries in this region and has no military basis in the region at all; elsewhere in the world the TTIP has all but collapsed and other trading blocks are growing in scope, mainly centring around China, which are drawing in some of America’s historical allies such as Peru and New Zealand; finally with Brexit America has lost it’s main ally in Europe, the U.K., which could reduce its influence in Nato.

By looking at national wealth, it seems that U.S. influence is in decline, as its share has shrunk from 50% in 1945 to 25% today,

However, these measurements fail to take into account the crucial factor of the ownership of the world economy – which is virtually never discussed – CORPORATE ownership of wealth.

U.S. Companies still own 50% of the world’s wealth

If we look at Corporate wealth, U.S. Companies are well in the lead in terms of ownership of the the global economy, and they are own over 50% of the world’s wealth in nearly every sector of the global economy – manufacturing, finance, services etc… of course although this wealth is held in the U.S. and supported by public money, it is not shared by all the citizens of the U.S.

If you look at the military dimension, the U.S. is of course still supreme.

Chomsky finishes by reminding us that the threats we now face are matters of human survival and they cannot be ignored, they need to be faced directly and soon if the human experiment is not to be a disastrous failure!

How to use this in the Global Development Module?

Basically it fits into the ‘how important are nation states’ aspect of the course.

Firstly, Chomsky seems to be suggesting that the United States still has enormous influence in the world – in that its lack of action on climate change means that it is able to disrupt the ability of other nation states to take coordinated action on climate change (whether this actually happens remains to be seen).

Secondly, it seems that other countries are becoming more powerful than the United States, and the U.S. is losing its political influence in certain ways.

However, if we look at the real ‘power indicators’ – wealth and military expenditure – the U.S. is still by far the dominant superpower.

Naomi Klein is one of the leading thinkers in the anti-capitalist movement and this book is one of the most important historical narratives of this century.

Taken from the web site –

‘At the most chaotic juncture in Iraq’s civil war, a new law is unveiled that would allow Shell and BP to claim the country’s vast oil reserves…. Immediately following September 11, the Bush Administration quietly out-sources the running of the “War on Terror” to Halliburton and Blackwater…. After a tsunami wipes out the coasts of Southeast Asia, the pristine beaches are auctioned off to tourist resorts…. New Orleans’s residents, scattered from Hurricane Katrina, discover that their public housing, hospitals and schools will never be reopened…. These events are examples of “the shock doctrine”: using the public’s disorientation following massive collective shocks – wars, terrorist attacks, or natural disasters — to achieve control by imposing economic shock therapy.’

My summary –

The Shock Doctrine is the story of how “free market” policies have come to dominate the world. Klein systematically explores how neo-liberal economic policies have been pushed through following ‘shocks’ – typically either natural disasters or wars ore oppressive state apparatuses.

Klein argues that these policies work against the interests of the majority because they transfer wealth and power from the people to the global corporate elite, thus why elites need to implement these policies of in times of shock following disaster.

The book traces the origins of the ‘shock doctrine’ back fifty years, to the University of Chicago under Milton Friedman and follows the application of these ideas through contemporary history, showing in detail how the neo-liberal agenda has been pushed through in several countries following shocks

Some of the events Klein covers include –

Pinochet’s coup in Chile in 1973,

The Falklands War in 1982,

The Tiananmen Square Massacre in 1989,

the collapse of the Soviet Union in 1991,

the Asian Financial crisis in 1997

The war in Iraq 2003

Hurricane Katrina 2006

All of the above are cases where the Corporate Elite, often in conjunction with the US government and oppressive regimes in some of the countries above have sought to profit out of times of disaster. Most of feel sympathy for people at such times – neo-liberalists see opportunity.

Once again, for me, the most important argument Klein makes is that Neo-Liberalists require situations of Shock to push through their policies of privatisation, deregulation and cut backs to public spending because the majority of people would not accept such policies because they mean a transfer of wealth and power to corporate elites.

Towards the end of the book, Klein talks about an extremely worrying trend in the USA – which is the privatisation of war and security – both of which are used in times of disaster – and we now have a situation where Capitalism benefits from disaster.

All in all this is an excellent book highlighting the links between advanced capitalism and growing human misery – as Klein says, you should read it and make yourself shock resistant.

NB – SOME MIGHT ARGUE THIS IS NOW GOING ON IN THE UNITED KINGDOM – WE ARE GOING THROUGH AN ‘ECONOMIC CRSIS’ (IN SHOCK) AND SO MILLIONNAIRE TORIES ARE NOW CUTTING PUBLIC SPENDING AND OUTSOURCING MORE AND MORE OF OUR PUBLIC SERVICES TO THE PRIVATE SECTOR!

Neo- liberalism is an economic and political ideology that believes state control over the economy is undesirable and seeks to transfer control of the economy from the state to the private sector. It gained popularity amongst politicians and influential economists following the economic crisis of the late 1970s. It involves three main policies –

Deregulation – Nation States placing less restraint on private industry. In practise this means fewer laws that restrict companies making a profit – making it easier for companies to fire workers, pay them less, and allowing them to pollute.

Privatisation – where possible public services such as transport and education should be handed over to private interests for them to run for a profit.

Cut backs in public spending – taxes should be low and so investment in public services would be cut back.